Is the EMI/Universal ‘Napster’ litigation about to backfire on the majors?

May 2006

COMPETITION / COPYRIGHTRecord labels

US district judge Marilyn Hall Patel has ordered Universal and EMI to hand over privileged documents relating to a federal government antitrust probe into the major record labels failed online services Pressplay and MusicNet. That investigation started in 2001 and was abandoned in 2003. At the heart of this demand for new documents is the question of whether or not EMI and Universal colluded on Pressplay and MusicNet in such as a way as to ‘discourage digital downloading’ – thereby protecting their CD business. The original claim in this case stems from the ongoing 2003 proceedings resulting from Bertelsmann’s investment in the original ‘illegal’ Napster. EMI and Universal took legal action against the Bertelsmann investment, arguing that the investment kept the original Napster running for longer than it could have done on its own thereby exacerbating online copyright infringements. However the requirement by Judge Patel is rather interesting – looking beyond the core issue in the case (the illegality of Napster’s services) and rather looking at the legality of the plaintiff’s business activities in as much as they are relevant to the case. It is not the first time the idea that the majors actively worked against a digital music download market has been raised. In March 2006 a law suit was filed in the federal court in the US alleging that the major labels had fixed download prices: The suit, from law leading legal class action firm Lerach Coughlin Stoia Geller Rudman & Robbins, also alleges that the record labels sought to shut down online music pioneer Napster at the same time they were introducing their own joint ventures to sell online music and the suit claims that MusicNet and Pressplay”were not serious commercial ventures, but rather attempts to occupy the market with frustrating and ineffectual services in order to head off viable online music competitors from forming and gaining popularity after Napster’s demise”. The allegations extend to the assertion that the majors conspired to hold back the growth of the digital music market to protect the high-margin CD side of their business. The majors are also accused of conspiring to set the wholesale price of digital tracks, getting up to $0.70 per $0.99 track. The Recording Industry Association of America (RIAA ) is named as a co-conspirator in this suit. In-Statprojects that global revenues for all online music sales (digital and physical) will grow from $1.5B in 2005 to $10.7B by 2010.